The market direction outlook for Tuesday was a repeat of the 50/50 outlook. Basically a 50 % chance of a slightly higher close and a 50% chance of a slightly lower close. Once again though there were other events that the market had to take into account. The strongest was perhaps the geopolitical happenings with President Obama putting in place still more sanctions, the EU sanctions and the continued fighting in Gaza. The market for some time has been ignoring most geopolitical events but since the downing of the Malaysian passenger airliner, the market is starting to pay a lot more attention. This is beginning to have an impact on the market direction.
UPS Stock and FEDEX Stock
Meanwhile UPS stock was pummeled today on its profit miss and its forward guidance. It closed today down 3.7% at $98.86. The Dow Transports which set a new all-time high just days earlier has fallen 4 days in a row now. Fedex Stock fell 1.60% in sympathy with UPS as nervous investors decided to take profits with Fedex stock trading at $147.14. Fedex is trading at 22 times price to earnings while UPS is trading at 22.8 times after today’s decline. UPS cash flow is at $6.49 per share while Fedex is at $15.10 per share. Just for interest I thought I would mention that in March 2009 when the bear market seemed like it was going to collapse still further, Fedex was trading at $34.02. I bought some Fedex in May of 2009 and paid $55.00, but I sold it in October 2009 at $76.00. Looking at today’s prices sure gives an investor a perspective on why buying during a stock market collapse is such a good idea.
After Hours – Twitter
After hours, all the buzz was with Twitter results which blew away estimates and investors pushed the stock up over 30% after the earnings were announced. That should translate into higher prices tomorrow for stocks. But let’s look at the technical aspects first.
Market Direction S&P Intraday Chart July 29 2014
The one minute chart for today shows the increase in volatility the market experienced. The morning open saw a slight dip and then a push to 1984.85. The rally seemed to be back underway but the market turned sideways and then unable to hold this level it fell back to support at 1975. The morning through to mid-afternoon saw the market direction retest the 1975 level several times. I wrote in my intraday comments that it looked like the market direction may hold either slightly above or below the 1975 level. Instead in the last half hour, investors sold the market pushing the S&P down to the lowest level of the day at 1970 and closed the market right at 1969.95. This leaves stocks 14 points of critical support at 1956..
Advance Declines For July 29 2014
When I wrote the afternoon intraday comments, volume was very low. By 3:00 PM about 2.2 billion shares had traded. In the last hour volume began to pick up and in the last half hour volume increased rapidly reaching 3.2 billion shares as more investors suddenly began to sell positions.
By the close 63% of all the volume traded was down and 58% of all stocks were declining. At 3:00 PM 53% of volume was down and 45% up. By the close 63% was down and 37% of volume was up. This was a dramatic switch in the last hour of trading.
New lows pushed to 49 and new highs came in at 88. New highs are far below where they need to be to continue this rally. New highs need to get back up to over 150 new highs a day to support a move higher. Today ended up being another weak day for stocks.
Market Direction Closings For July 29 2014
The S&P closed at 1969.95 down 8.96 and at the 1970 support level. The Dow closed at 16,912.11 down 70.48. The NASDAQ closed at 4442.70 down 2.21.
The Russell 2000 IWM ETF actually closed up today by 31 cents for a gain of 0.27% to $113.34.
Market Direction Technical Indicators At The Close of July 29 2014
Let’s review the market direction technical indicators at the close of July 29 2014 on the S&P 500 and view the market direction outlook for July 30 2014.
Stock Chart Comments: I have been commenting for more than a week now regarding the past chart patterns of the various dips in the S&P over the past 3 months. I have marked these in the chart above as A, B and C. The period marked D is where stocks are at present.
I have also been explaining how the previous patterns is not being duplicated as the S&P remains struggling. You can see in the chart above that the S&P is pulling back again. This is not a repeat of the past patterns and indicates clearly that the S&P is facing resistance to moving much higher at the present time.
1975 Support: There is a new support level developing at 1975 in the S&P. I have marked it in the chart above. While very light support, it is important for the market to stay at or above this level. You can see that 1975 has been retested a number of times over the past couple of weeks and was tested again today and failed. I have written several times that if the 1975 levels breaks there is a good chance the SPX will move quickly to test the 1956 level.
1956 Support Level has been tested in the past and has become a significant support level for the present rally. A close back below 1956 would end the present rally and I would trade to the downside. 1956 is NOT a significant support level for the bull market in general but it is for the market being able to continue higher into August.
Support levels at present are 1956 which is medium support and pivotal to the market direction continuing higher. 1930 and 1919 are both light support and would most likely just delay a strong pullback by a day at most. 1870 and 1840 are strong support. 1870 and 1840 at present mark important trading levels for investors. Both are now below the 100 day exponential moving average (EMA) so any pullback this summer which breaks 1870 should be used as a signal to commence picking up ultra short ETFs or spy put options 2 months out for a bigger move lower. A break below 1840 at present would challenge the 200 day EMA.
The other two support levels to mention are 1775 and 1750. As the market continues to push higher, these are now absolutely critical support levels. 1775 is important but 1750 is now the bottom line. A break of 1750 would mark a severe correction of 230 points which is below a 10% correction which would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors at this point and it is not something I am anticipating as there are no signs of any impending correction of that magnitude.
My Pullback Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919. While media outlets continue to write about an impending crash here, eventually they will be right but at the present time there are far too many bearish investors for a major correction.
Instead what we might see is additional weakness and higher volatility. That too would assist in driving up option premiums. The market though may try to push through August without much in the way of a correction. At present, I will be watching the S&P to see if it tries to make a new high and fails. If that should happen in August, then the market direction is definitely going to change to lower. This will be key for the next several days and possibly a couple of weeks.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is now negative. I explained last night that momentum was neutral and would probably turn negative if stocks had a down day or even a slightly negative day.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued sell signal on July 8 and the sell signal is still active and stubbornly refuses to move positive. This means that for almost the entire month of July MACD has been negative and refuses to support the push higher for the S&P. Today MACD moved to stronger negative readings.
Ultimate Oscillator: The Ultimate Oscillator settings are: Period 1 is 5, Period 2 is 10, Period 3 is 15, Factor 1 is 4, Factor 2 is 2 and Factor 3 is 1. These are not the default settings but are the settings I use with the S&P 500 chart set for 1 to 3 months. The Ultimate Oscillator fell quickly today and is now negative.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive but moving lower.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic has been issuing down signals since Friday. Today’s signal is stronger than the previous ones. That means if the Slow Stochastic is correct we should see lower values by mid-week. The Slow Stochastic is no longer overbought.
Fast Stochastic: For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when it is set for daily. The Fast Stochastic at the close has a strong down signal and is no longer overbought.
Market Direction Outlook And Strategy for July 30 2014
The market is technically no longer looking at a split decision. There are now 5 negative signals and only 1 positive signal. The negative signals are stronger and continue to fall lower. There appears to be momentum building to the downside.
Meanwhile stocks are still above the critical 1956 level for stocks but within 14 points of reaching it. A good down day will easily push the S&P to 1956. A break of 1956 will mean a chance in trend to down.
At present I am starting to close some further out of the money naked puts that have good profits but can be closed for 50% or better profits. While I am not concerned at this point, the technical indicators do point to further weakness for stocks which means many of the out of the money naked puts I have sold may move a higher in value if stocks continue to fall. Many of these can be closed now for 10 cents or even better. I have left many of them open while waiting for new trades to open up. If I can close them now for 10 cents or better, then it makes sense to take some of the risk back out of the market and lock in these profits. This will assist in building up some additional cash in the event that stocks do break through 1956.
The 1956 level must break before I change to trading more heavily to the downside. At present then the market direction outlook for Wednesday is for stocks to move lower. We could though see some buying in the morning due to the Twitter excitement. Overall though I don’t think one stock can hold this market up. Tomorrow I am anticipating a lower close and I do expect the market direction down will retest 1956 shortly. That will be critical for this latest rally.
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